Premier on the back foot over inheritance tax after launching 'crackdown'

Friday 21 September 2007 21:22 BST

Denial: Gordon Brown goes on the defensive

Gordon Brown was on the defensive over inheritance tax last night after campaigners accused him of launching a "crackdown" on families who try to avoid death duties.

New guidelines issued by the taxman reveal he will be paying "particularly close attention" to those who use the sevenyear rule to try to reduce inheritance tax.

Downing Street denied that the Government was trying to squeeze more money out of the tax by scrutinising how bereaved families have organised their financial affairs.

Opposition MPs and tax experts voiced concern after it emerged that HM Revenue and Customs has overhauled the way the "seven-year rule" is enforced.

They expressed fears over a promise to seek "further" information where tax inspectors believe information is being withheld.

Under current laws, any gift given more than seven years before a person's death is not subject to inheritance tax.

A gift received less than seven years before the donor's death is still counted as part of the estate, and is taxed at 40 per cent.

The rule provides a legal way of reducing the impact of inheritance tax by allowing donors to cut the value of their estates before they die.

Parents can use the rule to cut the inheritance tax bill they leave their children.

Inheritance tax applies on the value of estates above a £300,000 threshold.

The Government claims that just 6 per cent of estates qualify for the tax, but experts point out that the housing boom has left millions of families facing an inheritance tax timebomb.

With property prices soaring, in particular in London and the South-East, the rule is being increasingly used by families to minimise the impact of inheritance tax.

Parents who can afford to are also giving cash to their children to help them get on the property ladder. HMRC claimed it was merely trying to help families "get their accounts right".

A spokesman said: "The bereaved are not being targeted. There has been no change to the inheritance tax rules.

"We want to help administrators to get their accounts right first time, saving time and helping them to avoid any issues at what will already be a difficult time."

A spokesman for Mr Brown said: "This is not a crackdown. It's certainly not an attempt to collect any more inheritance tax. This is not about tax avoidance."

However, with David Cameron dropping broad hints that he plans a major reform of death duties to help middle-income families, the Prime Minister is under pressure to ease the impact of what the Tories claim is another stealth tax.

They accused Mr Brown of "tightening the screws" to produce more funds for the Treasury at a time when public spending is facing a squeeze.

The Government collects £3.3billion a year from the tax, nearly double the £1.7billion collected when Labour came to power in 1997.

Philip Hammond, shadow chief secretary to the Treasury, said: 'Since 1997, under Gordon Brown, the number of families paying inheritance tax has doubled.

"But not content with this, HMRC are now going to go through old records to see if they can squeeze yet more tax out of bereaved families.

"This is one more example of the Revenue tightening the screws on the taxpayer to feed Gordon Brown's insatiable appetite for cash."